LAN and TAM Plan to Combine

LAN Airlines and TAM have entered into a non-binding MoU that outlines their intentions to combine their holdings under a single parent entity.

The combination will create a new Latin American airline group that will be known as LATAM Airlines Group, and will include Lan Airlines and its affiliates in Peru, Argentina and Ecuador; Lan Cargo and its affiliates; TAMLineas Aereas S.A.; TAM Mercosur and all other holdings of LAN and TAM.

The transaction is subject to both parties entering into a binding definitive agreement and satisfaction of conditions, including corporate and shareholder approvals and actions as well as regulatory approvals. Each of the airlines in the group would continue to operate under their existing operating certificates and brands.

The all-stock transaction will consolidate the economic interests of LAN and TAM under a single parent entity while satisfying the foreign ownership and control requirements of each country where they operate. In connection with the transaction, LAN Airlines S.A. will be renamed LATAM Airlines Group S.A. (LATAM) and will serve as a parent company that will align activities for all group holdings. TAM shareholders will be offered 0.90 shares of common stock of LATAM for each share of TAM.

LATAM will retain its listing in the Santiago stock exchange and its ADR listing in the New York Stock Exchange and plans to list its shares, via BDRs, in the Bovespa in Brazil.

Within the group, TAM will continue to operate as a Brazilian company with its own structure. The current holdings of LAN Airlines S.A. will operate as an independent business unit within the group (and be referred to as LAN Airlines). Each airline within the group will maintain its current headquarters and governance structure.

The controlling shareholders of LAN and TAM have agreed to a governance model to jointly manage strategic decisions relating to the alignment of the activities of LATAM group holdings. Mauricio Rolim Amaro, currently Vice-chairman of the Board of Directors at TAM S.A., will serve as Chairman of Board of Directors of LATAM and Enrique Cueto, currently CEO of LAN, will serve as LATAM CEO.

Within the group, Maria Claudia Amaro, currently Chairman of the Board of Directors of TAM, will serve as Chairman of TAM under the new structure. Marco Bologna, currently President/CEO of TAM S.A. will serve as CEO of TAM. Libano Barroso, currently president of TAM Lineas Aereas S.A., will remain in that capacity. Ignacio Cueto, currently President/COO of LAN, will serve as CEO of LAN Airlines.

“This is the completion of the vision of our founder, Captain Rolim, who believed that in an open skies market, a large Latin American airline group would provide much more competitive services to our passengers and cargo customers,” said Marco Bologna, CEO of TAM. “Combining our strengths and complementary networks will bring great benefits to our customers, employees, shareholders and Latin America. Together, LAN and TAM will be able to offer new destinations that neither company could have supported on its own. This will position us to compete with the foreign carriers that continue to increase service to our region while creating new jobs in our home countries.”

The combined airline group will provide passenger services to more than 115 destinations in 23 countries while providing cargo services throughout Latin America and across much of the globe. The airlines of the group would operate a fleet of more than 220 aircraft, and have more than 40,000 employees. In 2009 these carriers had combined revenues of US$8.5 billion, carried more than 45 million passengers and carried combined cargo of 832,000 tons.

The combination is expected to generate annual synergies of approximately US$400 million. These synergies are expected to come broadly in equal proportion from alignment of the passenger networks, growth in the cargo network (both internationally and in Brazil), and reduced cost. It is expected that approximately one third of the synergies can be implemented within the first year following the close of the transaction, and all synergies by the end of the third year.

The combined airlines will have more than 200 aircraft scheduled for future delivery, driving growth and increased employment across the region.

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